Research & Commentary: Buy Here Pay Here Auto Dealerships

Published November 16, 2011

Transportation access is an important part of modern life, but purchasing a vehicle is an expensive proposition many people cannot afford. Acquiring financing can be a daunting task for low-income borrowers or those with no or bad credit. Both banks and credit unions have few options for these customers, who in many instances are forced to less-conventional financing in what economists call the fringe economy. One part of this fringe economy that has become increasingly prevalent, and increasingly controversial, are buy here pay here (BHPH) auto dealerships. 

At these dealerships, the consumer purchases a vehicle and secures the auto loan to finance it at the same institution. This arrangement allows the auto dealer to bypass bank approval, unlike conventional dealers, and thus enables loans to consumers with lower credit. Many of these dealerships require borrowers to bring a check or cash to their location, hence their name. 

These loans do come with a risk, and thus they involve higher interest rates than at conventional dealerships. Industry-wide, BHPH dealers operate at a loss for 30 percent of the cars they sell. Nonetheless, the high interest rates and sometimes-aggressive collection and repossession practices have led some consumer groups to call these businesses predatory. 

Despite this opposition, the BHPH business has been growing rapidly in recent years, providing financing for those consumers who cannot find it elsewhere. Even the industry’s most aggressive critics have failed to offer any alternative. For people who follow the rules, BHPH auto sales offer one of the few ways individuals with poor credit can rebuild it. 

The following articles examine buy here pay here auto dealerships and consumer credit from various perspectives. 

A Vicious Cycle in the Used-car Business,0,4616431,full.story
In the first installment of a three-part Los Angeles Times series on buy here pay here auto dealerships, Ken Bensinger examines how some BHPH dealers will repossess and resell a car multiple times when borrowers are unable to pay off their loans in time, and he outlines the efforts dealers take to track and repossess vehicles. 

Investors Place Big Bets on Buy Here Pay Here Used-car Dealers,0,2598239,full.story
The second installment in the Los Angeles Times series on BHPH dealers discusses how private equity firms are beginning to invest in chains of used-car lots and auto loans are being packaged into securities much like subprime mortgages, attracted by the industry’s average profit of 38 percent for each car sold. Some experts’ characterization of these investments as both risky and morally questionable are reported. 

A Hard Road for the Poor in Need of Cars,0,6362776,full.story
The final story in the Los Angeles Times series on BHPH considers the alternatives for low-income families needing a car, finding few programs exist to help low-income workers get behind the wheel. 

Used-car Dealer Aims to Restore Reputation
Bob Cox of the Star-Telegram examines a Texas buy here pay here dealer and highlights some problems it faced and criticisms from local government leaders. The dealer defends his business, explains the role of BHPH dealers in providing affordable loans, and the difficulties inherent in the business model. 

Buy Here Pay Here Financing: Pros and Cons
TM Brown of Associated Content outlines several pros and cons of utilizing BHPH auto dealers. 

High Cost or High Opportunity Cost? Transportation and Family Economic Success
Margy Waller of the Brookings Institution outlines in this report the opportunity costs experienced by transit-dependent poor households. When all costs are considered along with the benefits of private vehicles, it makes sense to press for more assistance and policies that reduce car ownership costs for poor workers, she concludes. 

Buy Here Pay Here Financing Basics
At, Jon Acuff provides an overview of buy here pay here financing and compares it to regular auto loan financing. 

Car Financing for Low and Moderate Income Borrowers
This study from the Consumer Task Force for Automotive Issues and the Aspen Institute defines other vehicle financing options for low- and moderate-income consumers, focusing on the for-profit sector but also including not-for-profit options such as Ways to Work and Working Wheels. 

Car Ownership and Working Families: Barriers and Opportunities
Tanika Davis of Market Wise discusses the importance of owning an automobile for working families and the barriers confronting those needing transportation. Davis also discusses the growing use of buy here pay here dealers by these individuals. 

Buy Here, Pay Here: Bottom-feeding for Used Car Buyers in a Recession
Alex Taylor III of CNN Money examines Car Mart, a major buy here pay here dealer. Taylor discusses how buy here pay here works, the fallbacks for paying loans late, and the growing popularity of the buy here pay here auto loan. 

Consumer and Mortgage Credit at a Crossroads: Preserving Expanded Access while Informing Choices and Protecting Consumers
Eric S. Belsky and Ren S. Essene of the Harvard Joint Center for Housing Studies explore trends in the use of debt by consumers in the United States and the reasons advanced for these trends, as well as their possible implications. They also trace the evolution of the risk-based pricing and unbundled, capital-market-funded credit systems and examine the special challenges, risks, and opportunities that the relatively new and rapidly evolving risk-based pricing system poses for consumers, credit providers, financial intermediaries, regulators, and community groups.